Jupiter takes a cooler look at Vietnam

Asset Class in Focus

A number of fund managers have singled out Vietnam as the most promising frontier market, but a more critical view comes from Ross Teverson, Jupiter Asset Management’s London-based head of strategy for emerging markets.

Ross Teverson, Jupiter Asset Management

Vietnam has been a favourite for fund managers, including Joshua Crabb, who was previously Old Mutual Global Investors’ head of Asia equities, and Mark Mobius, who left Franklin Templeton and recently launched his own asset management firm with former colleagues.

Vietnam’s stock market performance has been a key attraction for investors. On a three-year basis, the MSCI Vietnam Index returned 51.2%, double the MSCI Emerging Markets Index (26.39%), according to FE data. Year-to-date, the Vietnam index returned 4.21%, versus the emerging markets index’s -0.79%.

Market performance is supported by a number of developments in Vietnam, which Jupiter’s Teverson believes will help the country be re-classified as an emerging market.

“One of the key changes is that the caps of foreign ownership have been increased across the market. Index providers such as MSCI will look and consider this when deciding upon the eligibility of the market for re-classification to emerging market,” he said.

Teverson also said more companies are being listed on the local bourse, which should expand opportunities for foreign investors.

But as a frontier geography, he believes that there are better opportunities outside Vietnam, such as Nigeria and Kenya, which have more attractive valuations.

Similar to Vietnam, Nigeria and Kenya have exhibited strong structural growth and have favourable demographic profiles. “But those markets have been attracting fewer foreign investors [than Vietnam], so valuations are currently more appealing to us in those markets than in Vietnam.”

Indeed, valuations in Vietnam have become very expensive due largely to foreign investors in the local market. The trailing 12-month price-to-earnings ratio for the MSCI Vietnam Index reached 25.06x at the end of May, compared to MSCI Frontier Markets Index’s 13.62x, according to data from the index provider.

He also has some concerns about Vietnam’s banking and property sectors.

“If you look at the banking sector, more is needed to be done to develop a credit bureau to understand the risks inherent in consumer lending,” he said, adding that a risk is consumer borrowing, which has been rising rapidly.

For the property sector, he said that there is currently a significant supply of new apartments coming out in the market. “But the market’s ability to absorb that capacity remains untested.”

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